Home prices climb as fastest rate in 6 ½ years

WASHINGTON (MarketWatch) — U.S. house prices in December were 8.3% higher than a year earlier, the strongest advance since May 2006, CoreLogic said Tuesday. But the data also show the considerable distance to go before the housing market reaches prerecession peaks.

Mortgage rates near record lows, a dwindling backlog of foreclosures, waning distressed-property activity and a slowly improving jobs market have all put a wind at housing’s back. Low inventories of both existing and new properties also has helped prices.

That’s given a big stock-price lift to those firms who rely on the housing market, among them builders and banks. The iShares Dow Jones U.S. home construction index fund
ITB, +0.74%
is up 72% from 52-week lows, and the Select Sector SPRD-Financial
XLF, -0.32%
is up 32%.

In a note to clients published Tuesday, Bank of America Merrill Lynch analyst Michelle Meyer forecasts prices (using a somewhat different house-price gauge, the S&P/Case-Shiller index) to rise about 5% this year with housing starts up another 25%.

Meyer said the market still isn’t back to normal, with credit availability among the biggest worries.

“We anticipate some easing of lending standards this year, but it likely will take time for credit to flow freely again,” Meyer said.

Separately, Trulia said asking prices were up 5.9% year-on-year in January, while rents rose 4.1%. According to Trulia, that marks the first time since the recovery began that rent gains have been outpaced by price gains.

According to Jed Kolko, Trulia’s chief economist, the slowdown in rent increases is due to more supply rather than less demand.

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